Taking financial inclusion beyond bank accounts in India

Tuesday, July 29, 2014

Prime Minister Narendra Modi cleared the grand financial inclusion plan last week, which he is going to unveil on August 15. But before giving clearance, the PM asked a few pointed questions. What is being done now under financial inclusion? And how will the new plan be different and solve the problems faced by the current exercise?

The answer to the first question is obvious. Financial inclusion, predominantly, has been more or less limited to opening bank accounts. Banks are not interested in these accounts as there is not much of a business here, and account holders are not enthusiastic about it in the absence of a workable payment system.

Here lies the clincher which also answers the second question. The underlying message of the new financial inclusion plan, therefore, has to be much more than opening bank accounts.

It has to fix the payments problem. If there is cash dispensation facility and banks are getting enough money in the accounts on a regular basis making their operation a profitable proposition, there is no reason why financial inclusion can’t spread at a rapid pace. That nobody is currently interested in it explains why there has to be a fresh approach. The contours of the Modi plan are not new. The model was suggested by the former Unique Identification Authority of India (UIDAI) chairman Nandan Nilekani. It’s just that the previous government could not implement it. The NDA government is doing the smart work by making it happen by finding ways to implement it.